Spotify and Big Data: Algorithms and Data Processing Methods

Spotify and Big Data: Algorithms and Data Processing Methods

Authors: Ermira Salihu, Ilir Henci, Lorik Muçolli, Mohit Shrestha

open-graph-default

Image 1 – Spotify

Introduction:

Spotify is a Swedish music streaming service with 100 million active users as of June 2016. It provides copyrighted music and podcasts from music labels as well as independent content creators. As an online virtual service, Spotify is compelled to use Big Data and algorithms to its benefit in order to gain the most it can out of the services it provides. The streaming service claims that it attempts to use Big Data without infringing on one’s privacy, something very important in the online business sector. Privacy is a trade off which consumers have to marginally give up in order to receive all the features of what Spotify offers (Chau & Clemons, 2010). At Spotify, data is taken through specific algorithms and data processing methods in order to have the consumer and Spotify itself benefit (Spotify, 2016).

   Big Data at Spotify

Big data is something that is being generated at all times. Every digital process that occurs around us produces big data. It is up to us, the people, to analyze the data and use it to our advantage. Traditional methods are unable to process all the big data. Therefore, data infrastructure and algorithms were developed, in order to assist the processing. (IBM, 2016). When it comes to music and artists, people have many questions. Since everyone wishes to remain mainstream and up to date with the latest trends, they ask questions regarding the most popular artists and the most popular song with a certain period of time. Users also with to know what the most viral song is, and such information requires a lot of data analyzation. It is estimated that Spotify generated 2 TB of compressed data from users per day and that 64 TB of data is generated in Hadoop each day. Through Apache Hadoop, Spotify is able to get insight to offer a better product and make better user related decisions. All this data also gives Spotify a competitive advantage over its competitors (Palmer, 2013).

The use of Big Data does not only benefit the consumer, but also benefits the business. Big data can assist a company’s business analytics. Through its analytical algorithms, Spotify is able to determine the average daily active users and the number of signed up users. Such information gives the management of Spotify the ability to understand the situation that the company is in, and determine the future of their expansion. Due to trends being easily expandable, Spotify recognizes the neighboring countries of those countries with high daily users as an opportunity for expansion. (Palmer, 2013).

800px-availability_of_spotify_in_the_world-svg

Image 2 – Availability of Spotify in the World

Strengths:

       A Populous Community – It’s simple, Spotify’s numbers are mind blowing: it has 15 million premium users and 75 million non paying users, which is about 3 times more than its biggest competitors;  Last.fm, Apple Music, Amazon Music, and Tidal. We must acknowledge that Data coming from such a large number of users is not easy to analyze. Spotify uses very complex algorithms that ensure that data is accurately expressed, analyzed and then put into use. Failure to do so could result in a loss of users due to undesirable suggestions and inability to offer users music of their taste (Palmer, 2013).

   Product Split – Essentially,  the premium and the free user subscriptions are almost the same when it comes to features. The only thing that differs is that free users get to experience ads while using the product and on the other hand premium users enjoy the usage of the service add-free. They have the luxury of accessing their playlists even offline, therefore having some sense of total song ownership.

    5th-birthday-news-letter  

Image 3 – Spotify Streamed Songs

Large Selection of Music – One of the biggest strengths of Spotify is that it provides the customers a large variety of music. It goes back to the earliest recorded music in history. The high variety of music gives the customer an opportunity to create highly personalized playlists and to share them with every other user of the streaming service.

      Personal Playlists – Since Spotify was launched, it filled a major gap in the streaming market. It was the only service to offer fully customizable playlists according to their music preferences. They also offered the same exact song catalogue to every user with more than 20 million songs available, whether they subscribe or not.

       Social Music Platform – Upon its launch in the US, the platform strategically made connections with other services, such as Facebook and Twitter. Since partnering with Facebook, Spotify’s subscribers doubled from 10 to 20 million in 2013 (Dredge, 2016). This provided the user with a sense of identity when they would create a playlist and share it with friends. Said so, Spotify not only uses social media to attract new subscribers but also to interact and provide a more personal experience with the user.

       Cross Platform Compatibility – The service can be used in any online device from mobile device to desktop without having to convert the data to new formats. This allows the public to have easy access in their Spotify accounts, thus their music playlists without depending on the devices memory. Said so, there will be no storage issues and the music will be easy to search.

       App Utilization – Spotify utilizes different apps to its advantage by attracting new users while also improving their product offering. For example last.fm has an app through Spotify and so does Twitter, the latter has created a Spotify app where they create playlists of songs that are trending and the users fancy.

       Cheap Price – Spotify Premium is amazingly cheap. The price for a month of subscription is only 10$ a month. This gives the user unlimited access, ad-free experience in a universe of world’s best music for both streaming and downloading. Every user can have their heavily personalized playlist wherever they go in any chosen device at any time and also worth mentioning at superior quality. In a nutshell, using Spotify saves users loads of money.

Weaknesses:

       Nothing More Than Music – One of the biggest weaknesses of Spotify is the fact that they only stream music and not even music videos. In a world market full of similar services and identical content libraries it would take only one better alternative to kill Spotify off.

       Licensing Issues – Spotify is still undergoing different licensing issues with certain artists and labels. Despite providing the subscriber with considerably good music as Pink Floyd, Led Zeppelin, Adele, The Beatles, they still find issues with certain albums and records. There are artists like Taylor Swift that have disagreed with Spotify’s terms and terminated their music from the streaming service (Engel, 2014). Apparently Taylor Swift didn’t think that the music streaming service would appropriately value her art. Other than Taylor Swift, there is the example of Coldplay who held off their latest album from Spotify for 4 months before it was available for the service.

       spotify-rivals

Image 4 – Royalty Payouts

Unbalanced Profit – Spotify pays out 70% of its profit to artists and record labels. Yes, Spotify ensures revenue for the artists but the returns are not usually close to the expected numbers. Since most of the profit goes to the artists, there is almost nothing left for Spotify to profit. Making it very hard for the streaming service to earn from the market.

       Highly Commercialized – While ads are needed to generate revenue, there are other similar services like Songza that are totally free. Spotify always tries to grow its Premium user base. With their large payouts each month, this is reasonable. They cannot afford to cut back on commercials and ads from the service because there will be no profit and therefore they are unable to pay the artists.

       Territorial Limits – Another weakness of Spotify is the fact that it is limited to certain territories making it hard for subscribers to get a grip on music that they favor. Therefore it also limits its opportunity to make profit and have a secure net growth.

pandora_large

Image 5 – Revenue and Net Income

Opportunities:

       Globalization – Currently Spotify is available in more than 60 countries world-wide but there is still a lot of room for improvement. If Spotify keeps expanding at this rapid rate, it will surely establish a steady market only for itself and be able to fight music piracy. As users have become more loyal to Spotify, the idea of paying for a membership will become more of a reality as customers will forget about piracy.

       Improved Search Engine – Spotify also has plenty of room in improvement of its searching algorithm. The fact that Spotify is focused so much in the partnerships with Facebook and Twitter which both make it possible for the users to get recommended music means that there is room for improvement Spotify’s own search option. The better their search engine is, the more music their users are going to listen to. Said so, there will be more user loyalty and therefore the customers will switch to Premium accounts.

       Merchandise – In order to secure enough revenue to pay the artists, Spotify developed BandPage where they started selling merchandise directly to the listener. This opportunity will directly benefit both the artist and the listener, the listener will feel more connected to their favorite artist and also this means that the artists will earn more. Under these circumstances, Spotify should focus on improving this part of their industry (Chaffey, 2015).

       New Means of Revenue – There exists a chance that Spotify will start exploring new revenues in the near future. And honestly this would be a great idea. The fact that Youtube has developed Youtube Red, should be a wake-up call for Spotify to start diversifying the product it provides. Offering a video option would be profitable for its popularity and its revenue.

apple-music-will-be-available-in-100-countries-and-1433851624-96-4035939

Image 6 – Spread and Competitors

Threats:

       Piracy – Spotify is one of the streaming services that is opposing music piracy, but in the same time. Piracy has become one of Spotify’s biggest rivals. Different from Spotify, Piracy is ad-free and has an even bigger universe of music. It is also cross-platform which makes it even harder for Spotify to cope with this rivalry. The biggest obstacle for Spotify is fighting piracy and at the same time earning money to pay out on its clients and remaining a legal business that provides quality services.

       Lawsuits – Recently Spotify has faced a 2 multi-million dollar lawsuit for the cause of not paying correctly royalties to publishers and songwriters. Spotify needs to start dealing with artists as much as it deals with the customers. There are numerous artists that are annoyed with streaming services even though Spotify is doing everything it can. (Resnikoff, 2016)

       Intense Competition – Another threat that Spotify faces is the growth of its competitors like iTunes, Beats Music, Amazon and Google who are ensuring long-term challenges for user preference. Competitors also are more widespread, offering their products in more countries, to more people. In a lot of ways Spotify is ahead of its competitors but the real problem is that the other companies are managing to diversify at a faster rate than Spotify is. However, Spotify overwhelms its competitors by offering the largest catalog, the most compatibility, the best suggestions and discoveries (Blanco, 2016).

Conclusion:

As outlined by the points above, Spotify is a developing and successful music service. The fact that they managed to find a perfect midpoint for their premium user model which provides enough to attract users into going premium as well as not discriminating heavily against non-paying users is commendable. Along with their extensive music library as well as their social networking model, they have made music cheap and accessible to people worldwide. On the other hand, the geographical limitations and licensing issues that Spotify has been battling against put it in an unfavorable position. There is room for improvement with Spotify, and some possible improvements could be search algorithm optimization, or an alternative form of revenue generation, such as merchandising. Spotify also faces a lot of challenge from its fellow competitors including Amazon Prime, Google Play Music, or perhaps even YouTube. To conclude, Spotify remains a stronghold in the world of music streaming services. It continues to conquer its weaknesses, easily to become one of the most efficient big data users and one of the most efficient streaming services in the virtual world.

References:

Spotify, A. (2016). Music for everyone. Retrieved November 18, 2016, from https://www.spotify.com/us/about-us

Palmer, J. (2013, May 13). Analytics at Spotify. Retrieved November 20, 2016, from Spotify Labs, https://labs.spotify.com/2013/05/13/analytics-at-spotify/

Dredge, S. (2016, August 11). Spotify revenues grew sharply in 2013, but operating losses also rose. The Guardian. Retrieved November 20, 2016  from https://www.theguardian.com/technology/2014/nov/25/spotify-revenues-2013-losses-streaming-music  

Engel, P. (2014, November 14). Taylor Swift explains why she left Spotify. Retrieved November 22, 2016, from Business Insider, http://www.businessinsider.com.au/taylor-swift-explains-why-she-left-spotify-2014-11

Resnikoff, P. (2016, July 12). Spotify is crushing David Lowery’s $200 Million lawsuit. Retrieved November 23, 2016, from Digital Music News, http://www.digitalmusicnews.com/2016/07/12/spotify-crushing-david-lowery-lawsuit/

Chaffey, D. (2015, March 30). Spotify case study – marketing. Retrieved November 22, 2016, from Smart Insights, http://www.smartinsights.com/digital-marketing-strategy/online-business-revenue-models/spotify-case-study/  

Chau, M., & Clemons, E. K. (2010). Individual Privacy and Online Services. University of Pennsylvania – Wharton Research Scholars Journal, Paper 70, Retrieved November 20, 2016.

Blanco, X. (2016, October 21). Spotify, apple music, tidal, Amazon music unlimited and Google play music: Which music streaming app is right for you? Retrieved November 24, 2016, from CNET, https://www.cnet.com/how-to/best-music-streaming-service/

IBM. (2016, November 14). IBM big data – what is big data – United States. Retrieved November 20, 2016, from IBM Big Data, https://www.ibm.com/big-data/us/en/

Image References:

Image 1 – Spotify: http://d2c87l0yth4zbw.global.ssl.fastly.net/i/_global/open-graph-default.png

Image 2 – Availability of Spotify in the World: https://upload.wikimedia.org/wikipedia/commons/thumb/6/6a/Availability_of_Spotify_in_the_World.svg/2000px-Availability_of_Spotify_in_the_World.svg.png

Image 3 – Spotify Streamed Songs: http://routenote.com/blog/wp-content/uploads/2014/08/5th-birthday-news-letter.jpg

Image 4  – Royalty Payouts: http://musically.com/wp-content/uploads/2013/12/spotify-rivals.jpg

Image 5 – Revenue: https://g.foolcdn.com/editorial/images/142747/pandora_large.jpg

Image 6 – Spread and Competitors: http://dadaviz.com/media/viz_images/apple-music-will-be-available-in-100-countries-and-1433851624.96-4035939.png

Advertisements

One thought on “Spotify and Big Data: Algorithms and Data Processing Methods

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s